Wednesday, September 7, 2016

The Knot Being Unraveled – JV at a Tipping Point

There is a stereotype that East Asians get married for their parents and the society, whereas Americans do it for themselves. Scrutinizing Harvard Business Review’s “Trouble in Paradise,” one will easily find that such cultural differences split by the Pacific Ocean may affect not only a marriage of individuals but also that of companies, namely a joint venture. In this case study, Mike Graves faces difficulty keeping up a joint venture in the textile industry. Throughout the five years of his career as the general manager at the Zhong-Lian Knitting Company joint venture in China, he has demonstrated conformity to Chinese customs as well as the achievement of turning a profit; however, his boss on the American side, Bill Windler, has never been satisfied with him, wanting a higher ROI in the short term. Qinlin Li, the top executive on the Chinese side of this joint venture, on the contrary, has expressed his ambition to elevate Zhong-Lian into the national brand by proposing a new acquisition, which is apparently not profitable. In order to address this complex situation, Mike must formulate shared goals as soon as possible and reconsider the American side’s involvement in this 50/50 joint venture, proactively.

Perhaps the most urgent task Mike has to accomplish is to settle specific goals that benefit both sides of the joint venture: Suzhou First Textile Company in China and Heartland Spindle Company in the United States. The widening divergence of their purposes is severe enough to ruin their relationships. To fix this problem, he should step back to the fundamentals. He needs to re-read the original intensions of the joint venture and assess what has changed in the past ten years. For instance, as the average salary in China has increased, China might be no longer an ideal place for mass production. Rather, China may have market potential for increasing Zhong-Lian’s sales. Mike must declare new goals, which will help make a decision on the latest acquisition proposal and reach a secure consensus with Qinlin.

It is also essential that Mike persuade Bill and Hartland to change their minds. Bill’s suggestion for automation and lay-offs seems sensible at first glance but would not work well in China. According to a study by professor Erin Meyer at INSEAD, there is a significant difference in how people grow trust between the American and the Chinese. In contrast to Americans, who build trust in a task-based fashion, Chinese slowly brew trust by deepening relationships and sharing personal time. Were Mike to lay off a thousand of his employees, he would immediately lose trust from others. Even the government might penalize him, leaving a severe impact on Heartland. As his wife says “[d]on’t they understand that the Chinese way of doing business is different from the American way,” Mike needs to convince Bill about what and how the Chinese culture values.

If Mike finds making an agreement between Suzhou and Heartland difficult, it is time to restructure the balance of the two companies’ investments. Even though he has brought Zhong-Lian into the black, he feels this joint venture unfair, depicting the continuous expansion as “a drain on cash.” Mike, therefore, could decide to reduce Heartland’s share or exit from China completely. As commentator Paul W. Beamish at the University of Western Ontario mentions, the Japanese see the Chinese market as less attractive than before. One statistic shows the clear trend that Japan shifts investment from China to Southeast Asia: the growth of their investment in China has leveled off, while the amount invested in ASEAN(Association of Southeast Asian Nations) has tripled between 2010 and 2015. It can be a decent option for Mike to cease Heartland’s involvement in China, whether gradually or abruptly, and seek an alternative partner.

A final proposition is that Mike not be an observer but an initiator. He might have realized that Qinlin is more respected by both the government officials and the employees than he is. Without Mike’s approval, Qinlin spoke out about the new potential acquisition at their tenth anniversary party. Nonetheless, Mike must show his strength as the top executive of the joint venture. In a multicultural organization, it is a good idea to define its own culture code, a manifest-like document that succinctly illustrates the organization’s philosophy. For example, a culture code includes what the final goal of the company is, how to respect each other, or what makes their products distinguishable. The key here is to bring some of the American culture into the company; a blend of cultures stimulates employees. Mike, as a matter of fact, is on the right track in that he has introduced “Total Quality Management” and “Six Sigma.” What to do next is to announce his vision by using his own words.

After experiencing a successful ten years, Zhong-Lian Knitting Company is at a tipping point. Mike must retighten the “Chinese knot of red silk,” the symbol of cooperation, by seeking goals to which each side of the partners consents. This is not easy. Firstly, he needs to map out a unified strategy for the Chinese-side partner. Since the Chinese trust others not from the head but from the heart, employing motivational devices such as a culture code would be helpful. Secondly, for task-based trust-building Americans, he has to convince them by logically detailing the cultural differences between China and the United States. Only if Mike finds the equilibrium point in these cultures will this “marriage” bear fruit.